Chinese Rural Formal Financial And Non-formal Financial 'vertical Connection' Theoretical Analysis

With the deepening of reform and opening up and development of market economy, the demand for financial services in rural areas increased, while the formal financial services provided can not meet the demand for financial services in rural areas, the lack of rural financial market operations microscopic information, the formal financial market can not effectively cover the rural areas. Thus, various forms of informal finance came into being, in the vast rural areas, informal finance and formal finance coexistence is widespread and constitutes a magnificent rural credit market picture, both co-exist in itself explain the existence of a reasonable sex. Effective use of the advantages of both, to increase the supply of rural credit, the "vertical connection" thus came into being. Its purpose is to through the formal financial resources to increase the supply of non-formal financial turn to informal financial expand lending to farmers.This article will first analyze the structure of rural credit markets, describes the background of its operation, the formal finance and informal financial loan covenants, rural formal finance and informal finance loan structure; secondly, by introducing formal financial and non-formal financial relationship between the two implementation of the 'vertical connectivity' pave the way for theory; again, this article focuses on theoretical and empirical analysis of "vertical connection" a prerequisite for and feasibility of an empirical proof "vertical connection" efficiency. That formal finance and informal finance between "complementary" relationships is a "vertical connection" premise. Obtained through the empirical analysis: the formal financial and non-formal financial existence of synergies, both through 'vertical connectivity' is able to increase the supply of rural finance; to build on this idea of rural formal finance and informal finance 'vertical connection 'to take the model that can consider our formal financial commodities trading interconnects, and with its own funds and lenders and the financial group's cooperation and the various models for the case of importing more successful as a reference, hoping to improve China's rural financial structure, the promotion of China's rural financial development will provide some help; last part of the article, conclusions and policy recommendations, summarized the results of this study, and our formal finance and informal finance 'vertical connectivity' model put forward some policy recommendations also pointed out the deficiencies of this study and future research directions.In short, the "vertical connection" in the process of China's rural economic development is feasible. Therefore, to actively guide and rational use of non-formal finance and informal finance in the process of promoting rural economic development are complementary and coordinated development.